Qantas 2007 Annual Report Download - page 81

79Qantas |Annual Report 2007
(F) Derivative Financial Instruments continued
Fair Value Hedges
Changes in the fair value of derivative financial instruments that are
designated and qualify as fair value hedges are recorded in the Income
Statement, together with any changes in the fair value of the hedged asset
or liability that are attributable to the hedged risk.
Cash Flow Hedges
The effective portion of changes in the fair value of derivative financial
instruments that are designated and qualify as cash flow hedges are
recognised in equity in the hedge reserve. Amounts accumulated in the
hedge reserve are recognised in the Income Statement in the periods
when the hedged item will affect profit or loss (i.e. when the underlying
income or expense is recognised). Where the hedged item is of a capital
nature, amounts accumulated in the hedge reserve are transferred from
equity and included in the measurement of the initial cost or carrying
amount of the asset or liability.
When a hedging instrument expires or is sold, terminated or exercised,
or Qantas revokes designation of the hedge relationship but the hedged
forecast transaction is still expected to occur, the cumulative gain or loss
at that point remains in equity and is recognised in accordance with
the above policy when the transaction occurs. If the underlying hedged
transaction is no longer expected to take place, the cumulative unrealised
gain or loss recognised in equity with respect to the hedging instrument is
recognised immediately in the Income Statement.
Derivatives that Do Not Qualify for Hedge Accounting
From time to time, certain derivative financial instruments do not qualify
for hedge accounting. Changes in the fair value of any derivative
instrument, or part of a derivative instrument, that does not qualify for
hedge accounting are recognised immediately in the Income Statement as
either Ineffective derivatives – closed positions or Ineffective derivatives –
open positions.
Amounts shown in Ineffective derivatives – closed positions reflect
changes in fair value of any derivative instruments, or part of a derivative
instrument, that does not qualify for hedge accounting and the underlying
exposure to which the derivative related was recognised in the current
financial period.
Ineffective derivatives – open positions reflects changes in fair value of any
derivative instrument, or part of any derivative instrument, that does not
qualify for hedge accounting and the underlying exposure to which the
derivative relates will be recognised in future reporting periods.
Fair Value Calculations
The fair value of financial instruments traded in active markets is based
on quoted market prices at balance date. The fair value of financial
instruments that are not traded in an active market are estimated using
valuation techniques consistent with accepted market practice. The
Qantas Group uses a variety of methods and input assumptions that
are based on market conditions existing at balance date. The fair value
of derivative financial instruments includes the present value of estimated
future cash flows.
Financial Guarantee Contracts
Financial guarantee contracts are recognised as a financial liability at the
time the guarantee is issued. The liability is initially measured at fair value and
subsequently at the higher of the amount determined in accordance with
AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the
amount initially recognised less cumulative amortisation, where appropriate.
The fair value of financial guarantees is determined as the present value of
the difference in net cash flows between the contractual payments under
the debt instrument and the payments that would be required without the
guarantee, or the estimated amount that would be payable to a third party
for assuming the obligations.
Where guarantees in relation to loans or payables of controlled entities
or associates and jointly controlled entities are provided for no
compensation, the fair values are accounted for as contributions and
recognised as part of the cost of the investment.
This policy was adopted for the first time this year following changes to
AASB 139 Financial Instruments: Recognition and Measurement. The new
policy has no material impact to this year’s financial results or comparatives
and as such, a restatement was not required.
(G) Revenue Recognition
Passenger, Freight and Tours and Travel Revenue
Passenger, freight and tours and travel revenue is included in the Income
Statement at the fair value of the consideration received net of sales
discount, passenger and freight interline/IATA commission and goods and
services tax (GST). Passenger recoveries (including fuel surcharge on
passenger tickets) are disclosed as part of net passenger revenue. Freight
fuel surcharge is disclosed as part of net freight revenue. Other sales
commissions paid by Qantas are included in expenditure. Passenger,
freight and tours and travel sales are credited to revenue received in
advance and subsequently transferred to revenue when passengers or
freight are uplifted or when tours and travel air tickets and land content
are utilised. Unused tickets are recognised as revenue using estimates
regarding the timing of recognition based on the terms and conditions of
the ticket and historical trends. Changes in these estimation methods
could have a material impact on the financial statements of Qantas. Refer
also to the Frequent Flyer accounting policy in Note 1(T).
Contract Work Revenue
Revenue from the rendering of services associated with contracts is
included in contract work revenue.
Where services performed are in accordance with contractually agreed
terms over a short period and are task specific, revenue is recognised
when the service has been performed or when the resulting goods’
ownership pass to the customer.
Revenue on long-term contracts to provide goods or services is recognised
in proportion to the stage of completion of the contract when the stage of
contract completion can be reliably measured and otherwise on
completion of the contract.
Other Income
Income resulting from claims for liquidated damages is recognised as other
income when a contractual entitlement exists, it can be reliably measured
(including the impact of the receipt, if any, of the underlying assets’
carrying value) and receipt is virtually certain.
Additionally, revenue from aircraft charter and leases, property income,
Qantas Club membership fees, Frequent Flyer revenue relating to other
carriers, freight terminal and service fees, commission revenue, age
availed surplus revenue and other miscellaneous income is recognised
as other income at the time service is provided.
Finance Income
Interest revenue is recognised as it accrues, taking into account the
effective yield on the financial asset.
Notes to the Financial Statements
for the year ended 30 June 2007
1. Statement of Significant Accounting Policies continued